Month: March 2012

Fannie Mae and Freddie Mac own more than half of the mortgages in the United States. This has lead many people to push for these two government controlled entities to offer principal write downs like the banks that were part of the National Mortgage Settlement.

Ed DeMarco, the acting director of the Federal Housing Finance Agency and overseer of Fannie Mae and Freddie Mac, has resisted principal write downs as not in the best interest of taxpayers. Members of Congress disagree.

Representative Barney Frank, the Massachusetts Democrat who supported Fannie Mae almost to its collapse, has called for Mr. DeMarco’s resignation because he is “too rigid” on the issue. Representative Elijah E. Cummings, a Maryland Democrat and ranking member of the House Committee on Oversight and Government Reform, told a field hearing in Brooklyn last week that Mr. DeMarco “may be the biggest hurdle standing between our nation and the recovery of our housing market.”

The title of the article refers to the following explanation of how the requested principal reductions by Fannie and Freddie would constitute and bailout for private banks. Many banks hold second liens on the same properties for which Fannie and Freddie either own the first mortgage or have guaranteed. If principal amounts on these first mortgages are reduced while leaving the second liens intact, those seconds become much more likely to be paid off over time. With no principal reduction, the banks would have to write off many of those second liens.

At the time this article was written it was not know that BoA would independently be required to provide principal write-down to 200,000 mortgage holders. This graphic illustrates the numbers of delinquent investor-owned mortgages serviced by BoA.

This article, written before the actual terms of the agreement were made public, presents the opinion of experts that think that the mortgage settlement will do little to improve the housing market. Even if the most optimistic goals of the architects of the agreement are reached the amount of relief provided will only equal 5% of the total underwater value of mortgages in the United States. Also, because the agreement only binds the five banks that joined the agreement, and not Fannie Mae or Freddie Mac (owners of over 50% of mortgages nationwide) a few people will receive dramatic help, but the vast majority will not be helped at all.

The settlement documents filed with the federal court provide little detail about the misdeeds government investigations uncovered. But the documents devote hundreds of pages to detailing how different types of relief will count toward the banks meeting their obligations under the settlement.

The banks did not admit to the allegations laid out in the complaint as part of the settlement, but the government said its intention was to “remediate harms allegedly resulting from the alleged unlawful conduct.”

This article does provide a little more detail on the requirements for principal reductions. 30% of the relief provided under the settlement documents must be in the form of principal reductions for homeowners who owe 175% of their homes value. Banks are expected to bring a borrower’s monthly payments to within 31 percent of a borrower’s income, and establish a new loan value that is no greater than 120 percent of the value of the home.

Many homeowners who are in default on their mortgage or have been sued for foreclosure consider filing bankruptcy. The decision of when or if to file bankruptcy must be considered on a case by case basis, and should be decided after consultation with an attorney.

Filing for bankruptcy protection may include surrendering your home to the bankruptcy trustee. The distinctions between types of bankruptcy chapters is not important to the subject of this post. The discussion applies to anyone who has surrendered their home to the bankruptcy trustee.

The act of surrendering the property to the trustee is basically giving the trustee permission to sell the property as part of the bankruptcy estate. Meaning the trustee may sell the property and distribute the proceeds to satisfy debts you are seeking to discharge and are included in your bankruptcy plan.

In many cases the debt secured by the property surrendered equals or exceeds the value of the property. In this instance the trustee may decide not to sell the property. If the trustee does not sell the home it remains the property of the homeowner until such time as a secured party enforces its lien on the property.

When the property is surrendered under the bankruptcy plan but is not sold by the trustee, the homeowner is personally discharged from the debt. Following discharge the homeowner has no more legal obligation to pay the mortgage; But, if the owner doesn’t pay the mortgage the bank can foreclose to take title to the property. The distinction is whether the homeowner is personally liable for the debt.

The homeowner has no obligation to, and should not vacate the subject property until the bank completes its foreclosure and takes title to the property. Until such time as title is legally transferred the homeowner remains responsible for various recurring charges that come due following the bankruptcy discharge date, e.g. community association fees, property taxes, etc. During the time you are still legally obligated to pay these fees you should remain in the home you are maintaining.

As for the banks burden in foreclosing its lien and taking title to the subject property, it still must prove it owns your loan, has met all conditions the loan requires before filing suit, and must overcome all defenses you may have to the foreclosure action. The bankruptcy does not relieve the bank of any of its burden to prove its case before it can obtain final judgment.

If you are in foreclosure or default, and considering filing bankruptcy, please call me so we can discuss how I can help.

This post is not intended to be legal advice. Before making any decisions regarding bankruptcy, foreclosure, or other decisions affecting your obligations to pay debts, you should seek the advice of an attorney who is familiar with your particular situation.

This article from the Baltimore Sun discusses Maryland’s decision to not use funds from the National Mortgage Settlement to plug holes in the state’s budget , but to reserve the funds for there intended purposes. HUD Secretary Shaun Donovan commented on Baltimore’s decision and criticized other state’s proposed use of the money.

“The settlement makes very clear that the intention of this funding is to be used to help homeowners stay in their homes, to help communities recover, and yet we have attorneys general in some states, governors in some states, legislatures, that are trying to divert this funding away from the intended purpose to fill gaps in state budgets,” Shaun Donovan said.

He pointed to Virginia as an example. The commonwealth’s General Assembly — given the right to decide by Virginia’s attorney general — is discussing a plan to send the lion’s share of its $66 million to local governments for education. Officials there said local budgets took a pummeling as the mortgage crisis reduced property-tax collections.

The National Mortgage Settlement awards money to the States that is intended to be used to help struggling families stay in their homes. Some states are using this money for other purposes.

This Article from the Huffington Post discusses Ohio’s decision to use $72 million of its $335 million to demolish abandoned homes in the greater Cleveland area.

Cleveland and the surrounding unincorporated area has 23,000 abandoned homes. Many of these homes are bank owned. When the bank took over ownership of the homes they made no effort to maintain the properties, which became health and safety risks.

Cleveland and other cities have taken the banks to court to force them to maintain the properties but have so far been unsuccessful in getting a court to require the banks to maintain these properties.

Other states’ use of settlement funds not directly related to foreclosure crisis:

Missouri Gov. Jay Nixon laid claim to a chunk of the money to avert a huge budget cut for public colleges and universities.

In Pennsylvania, where a fourth straight budget deficit is projected, Democrats are pressing the Republican-run attorney general’s office to use some of its $69 million payment to offset $2 billion in cuts to programs that benefit education, the elderly, disabled or poor.

Vermont plans to use $2.4 million from the settlement to help balance its budget.

Maryland Attorney General Doug Gansler said about 10 percent of his state’s $62.5 million payment will be made available for the governor and lawmakers to spend as they choose.

Are you currently in default on your mortgage or have you been sued for foreclosure? Is your Homeowners Association or Condominium Association foreclosing, fining, or suing you?

An Attorney can help protect your rights.

As a homeowner may have other defenses to assert against the bank, Homeowners Association or Condominium Association to prevent foreclosure and defend your lawsuit. To ensure that all of your defenses and claims are presented properly and in a timely manner it is important to have an attorney working for you in preparing and presenting your case.

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Francis M. King is a Florida Supreme Court Certified Circuit Civil Mediator. He is available to serve as a mediator, and offers his services as representation to parties in mediation and other alternative dispute resolution proceedings.

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About: Francis M. King, Esq.

Francis M. King is an attorney in the Tampa Bay Area, and has practiced in this area for 14 years. His practice focuses on the representation of homeowners who have been sued for residential mortgage foreclosure, or who have been sued by their Homeowners Association or Condominium Association.

In the past Mr. King has represented large lending institutions in the collection of consumer debts, and has represented community associations in the foreclosure of liens and collection of past due assessments.

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